 Hello and welcome to NewsClick. Today we have with us Sri T. N. R. Rao, former Petroleum Secretary and has been associated with the oil and petroleum sector for a long time. Paranjay Gohotagurtha, who's also been associated with the oil and gas sector in terms of writing a couple of books on it and various exposures and articles on it. Today we are not discussing the oil and petroleum sector primarily. What we will start to discuss is the basic the fall of the rupee if you will. The fact that it has dropped to its lowest at least to buy in my memory that it has never come this low. So Paranjay, why do you think the shall we say the secular decline of the rupee is taking place over the last few months? Okay, Praveer, earlier in the morning of Thursday the 28th of June it became a historic date because the rupee has collapsed to its all-time low. In early trade it came down by about 49 paise and to 6910 rupees to a US dollar. So this is the historic low. Why is this linked to oil? Because I think there are a variety of reasons why the rupee has collapsed to its all-time low but I would say among the most important reasons is the huge concerns about oil prices within the country and outside the country. Let's first look at what's happening in the international scenario. Then America has told its everybody including India not to buy oil from Iran starting I think the 4th of November. Now in addition to that there have been some disruption in supplies from Libya and Canada. Now India as you know is the world's third largest importer of oil. We are importing about 80% of our total requirements and much of it is coming from Iran. Also from Iran also from Saudi Arabia the proximity of Iran to India all of these are factors which makes India import oil from Iran. Now all of the I mean so the concerns within India that now oil prices are going to go up and that would widen the current account deficit already by the way the current account deficit when you look at it where it is at present about 160 billion US dollars it's more than 40% higher than what it was a year ago. Now you have various other factors including the withdrawal of their investments by foreign portfolio investors and you have a situation. Well that's an important point also to register while we have rising oil prices which means our import bill is going up. One of the additional elements this time is the fact that the Fed has increased its interest rate which means there is also withdrawal of money from different places including in India and investing in the US. Oil prices and foreign has flagged it as one of the more important elements in the shall we say the weakening of the rupee. Do you see for instance the oil prices continue to grow up or do you think with the decision of the OPEC to increase oil production that the prices actually is? Now I don't think the decision to increase in any manner going to reduce the prices because as I observed earlier you see very few members of the OPEC have the capacity to increase the production because any increase or decrease has to be shared by all and there are not many who can do that except perhaps Saudi Arabia and United Arab Emirates. Venezuela is in no way to do that therefore some analysts have calculated this so-called 1 million increase actually translates to a mere 460,000 barrels which is less than half a million in the market that is why if you if you notice that as soon as the decision came markets actually went up because they there is a sentiment they saw that there is a decision here but that didn't mean anything actually because you know half a million dollar half a million tons of oil into the more half a million barrels is not going to make any difference and you see the calculations of the most of the OPEC countries especially Saudi Arabia which wants to hold it around 75 to 80 number of good reasons and in fact they have all to balance their budgets that is very important for them because their only source of revenue is oil so too is Russia Russia's budget balance is only at 100 dollars now they are also cooperating for good reasons so this is this is a very important factor and secondly you know the earlier gamble by Saudi Arabia to defeat the shale production by pulling down the gas oil price did not work because you know the shale people there are very aggressively aggressive cost cutting and remarkable developments in technology now therefore you know this 50 dollars 40 dollars is not going to curb shale production in any manner so that they won't do the only threat there for them is renewables if this oil prices are held continuously for long renewables below 70 may become viable in which case they will start eating into the oil demand I think this is a factor which they will consider a little lower the immediate priority has been to see how to address the issue arising out of the US withdrawal from the Iran agreement so the in fact the renewable part would be a longer term scenario not a short term scenario short term two issues really one is withdrawal from Iran as you said the agreement to withdraw is only one part the sanctions in all countries would buy Iranian oil and gas is the really the bigger issue and the big stick the US wheels by virtue of its control over the dollar that is one and the second the biggest reserve holder in the world today Venezuela is also in the sanctions so these are the two things which make it difficult according to you for the oil essentially the oil market to ease and say if I may just add to the question that probably raised when you say short and long I mean because it's going to have a direct impact on the value of the rupee India's current account deficit and inflation above all inflation at home because of diesel prices petrol prices what I mean how long do you expect these oil prices to be high and when could they possibly ease you know I mean if I ask you to predict to the crystal ball game the most hazardous thing for anybody to do is to predict oil prices in fact there has been there is there is a no no but anyway you know people factor in some things and see how the oil prices are going to behave for all the reasons which have mentioned there is no good reason immediately for oil prices to come down but there are plans there were some plans done you know at the time of when the expectations were there about the Iran accord being signed with the previous administration and the and some people fave felt that the agreement may not be signed what to do at that time you're talking about the U.S. and U.S. to run agreement Obama administration see there are plans of food at that time for example to take the Iran oil for example Russia was prepared to take the Iran oil as theirs and put in the market as their oil and now there is a new development which has gone unnoticed but which has got a lot of potential China has started an exchange normally you know it is the sellers big sellers who have an exchange but China as the largest buyer has started the whole purpose is you know it the long back you must have heard the the concept of de-dollarization of oil it is Iraq you know Saddam Hussein who started and paid the price for it now if the Chinese exchange mechanism succeeds and if the buyers and others European even the multilateral agency is like any non-dollar any non-dollar currency it has a huge impact on the market at that time both on prices and everything on the efficacy of U.S. sanctions this is being watched very closely you know China doesn't you know begin things just like that without proper study I think that's a very important point you're making that this in fact will lead to a situation where dollar is not the only reserve currency for oil and till now all the oil clearances the market clearances takes place to the dollar and therefore the U.S. can actually sanction any country buying Venezuelan or Iranian oil and while Venezuela may not affect us directly Iran oil as you all don't do so in fact this may in lead to a situation where dollar does not become the only or the sole current shall we say currency of resort last resort for every country in the world that it could be the yuan becomes also a currency which people could use but something to see for the last question to you on the that when we had happy times meaning oil price was falling we had low inflation as a consequence we had a fairly flexible budget because we didn't really lower the oil price but we not silly took it in some form into the government X checker through taxes all of this we didn't really plan for our types you know it's very important that you say this and I'll take one step back in the run-up to the 2014 elections in fact right through the second half of 2013 Mr. Narendra Modi who was then just the prime ministerial candidate of the Bharti Janta party he had put out a series of devastating tweets and I'll just give you a few examples who will fall lower the Congress or the rupee question mark in 1947 or when India became independent one rupee equal one dollar where are we now then he said that the rupee isn't the ICU he went on to say he raised a question for the Congress party are you going to save your government or the rupee now it's interesting that all this is now coming home to him as you rightly pointed out soon after mr. Modi became the prime minister of India oil prices were still high there were about a hundred fifteen dollars a barrel it came crashing down by January to at one stage about twenty twenty five dollars a barrel thereafter it's been steadily it means steady but benign but it's only recently in the last six or eight months it been firming and currently hovering in the 75 to 80 dollars which has resulted in inflation going up you know before the Karnataka elections the Indian Oil Corporation didn't increase oil prices for 19 days and suddenly after the elections that went up so all of its shows that we have less than a year to go for the next general elections and once again as in 2014 this is likely the value of the rupee oil prices and inflation are going to become major political issues thank you very much mr. Rao for a joy for being with us and having this discussion this is all the time we have produced click keep watching this click and also visit our YouTube channel